End-of-Year Tax Package Provides Additional Support for Geothermal Heat Pumps


By Lauren Schapker

Nearly every December the U.S. Congress heads home for the holidays but not before making a mad dash to extend or renew expired or expiring provisions in the tax code.

These “tax extenders” are generally tax credits placed in the tax code for a limited amount of time. As the expiration date for the tax credit approaches, many tax credits are given another look to determine whether or not they deserve to have their expiration date pushed back a few years.

Several provisions throughout the tax code incentivize the use of geothermal heat pumps (GHPs), either by helping offset the costs of installation through depreciation or with a tax deduction in support of renewable energy use.

Many of these were put in place in the mid-2000s—including tax credits for GHP installations at the residential and commercial level, which was added to the tax code in 2006. These credits were given an expiration date of December 31, 2016, but NGWA and allied organizations worked throughout 2015 to promote extending the tax credit in advance of its expiration—as well as promote other provisions in the tax code that would advance energy efficiency.

Unfortunately, when the 2015 tax extenders bill was passed, an early extension of GHPs was not included. Congress extended provisions only for wind and solar under the false assumption provisions like geothermal, combined heat and power, and fuel cells did not need to be extended because they expire at the end of 2016.

The full version of this column will appear in the upcoming February issue of Water Well Journal, which focuses on geothermal heat pumps.

However, solar also expires in 2016, refuting that argument. NGWA worked quickly to make sure allies in Congress were aware of this oversight and continue to do so.

Thankfully, several other provisions within the legislation NGWA advocated for will be beneficial in stimulating markets for renewable energy systems like GHPs as well.

First, a key parameter for qualifying for the tax credit was modified. Rather than having renewable energy systems installed and operational by the tax credits expiration date, the provision now only requires systems to be under construction rather than completed.

A provision known as Section 179, which governs small business expensing, was made permanent in the final package. Section 179 allows for a business to deduct 100% of the full purchase price of property like a GHP system for items costing up to $500,000.

Next up, Congress also modified and extended bonus depreciation, extending it through 2017, with a phasedown beginning in 2018. The provision allows 50% bonus depreciation for property placed in service through 2017. That number drops to 40% for 2018 and 30% in 2019. This provision could result in substantial tax savings for property owners, but is only eligible for new properties.

A separate provision known as Section 179D was extended for two years, covering 2015 and 2016. This provision, which would retroactively apply to 2015, provides a tax deduction for the construction or retrofitting of energy efficient commercial buildings.

Extension of GHP tax credits will be one of the four core issues NGWA advocates during its 2016 Groundwater Fly-In, February 22-23 in Washington, D.C. Members of Congress need to hear from constituents—NGWA members—who install and support the use of GHPs to generate momentum in support of extending tax credits for GHPs in residential and commercial applications.

In addition to extending tax incentives for geothermal heat pumps, NGWA members will focus on support for the National Ground-Water Monitoring Network, drought legislation, and the Water Supply Cost Savings Act (H.R. 5659).

Lauren Schapker started with NGWA in November 2014 as the director of government affairs. Prior to joining the Association, she served as director of government and political affairs for the Portland Cement Association and a senior policy adviser for Xenophon Strategies, a firm which provides government relations and public affairs services. Schapker can be reached at lschapker@ngwa.org.